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Confronting the Gray Market Problem

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Abstract

Gray markets involve the sales of legitimate products by way of channels of distribution that are not authorized by the brand owners. Gray markets may benefit consumers and even brand owners under certain circumstances. On balance, however, gray markets are detrimental to brand owners because gray market traders access genuine product in both physical and virtual markets and reap profits stemming from the resale of goods owing to price differentiation between markets, thus depriving brand owners of those profits. In this study, we discuss the principal factors that encourage a gray market and the legal underpinnings that permit gray markets in the United States. We then summarize managerial tactics—both reactive and proactive—to combat gray markets.

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Notes

  1. There are also gray markets in securities, but these are not addressed in this paper.

  2. In this paper, the terms “gray market” and “parallel trade” are synonyms to describe the unauthorized sale of goods across and within markets.

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*Peggy E. Chaudhry is an associate professor at the Villanova University School of Business. Her research focuses on intellectual property and illicit trade issues, particularly, counterfeit and gray markets. Her publications include managerial tactics to curb counterfeit trade, consumer complicity with counterfeit goods, and gray markets. She has both pragmatic work and academic research that includes journal articles and two books. She has been invited to speak or give testimony on the protection of intellectual property rights to a variety of audiences that include the U.S. Government Accountability Office, the U.S. International Trade Commission, and the Organization for Economic Cooperation and Development. She received her Ph.D. in International Business with minors in International Economics and Marketing from the University of Wisconsin at Madison.

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Chaudhry, P. Confronting the Gray Market Problem. Bus Econ 49, 263–270 (2014). https://doi.org/10.1057/be.2014.29

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  • DOI: https://doi.org/10.1057/be.2014.29

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